Corus may ally with CSN for mining

Tata Steel Ltd’s European subsidiary Corus is looking for partners in different mineral-rich countries to develop iron ore and coking coal mines, aiming to get half of its inputs from captive sources by 2014-15, Kees Gerretse, director (supplies and transport), said.

The company currently gets its entire raw material supply through long-term contracts. The volatility in prices of these products weighs on the profit margin of the company and shrinks consolidated operating margin of the group. Corus had planned to achieve 50% raw material security by 2012, but had to push back the plan due to the global meltdown.
“We are looking for greenfield mines and also partners to develop them,” Gerretse said during his recent visit to Delhi.

“For instance, we could join hands with CSN in Brazil for iron ore mines there.”
Local partnership is fast becoming a norm in the world of mining, considering complicated rules involved in awarding mining leases in most countries.

Gerretse said the company will look at Brazil, Canada, Senegal and Ivory Coast for iron ore, and Australia and Mozambique for coking coal. Tata Steel’s India operations get 100% iron ore and nearly 70% coking coal supply from captive mines, which gives it an envious position among its peers and makes it one of the most efficient steel makers in the world.

The company has bought 5% stake in Australia’s Carborough mines and is engaged in a joint venture with Riversdale in Mozambique for coking coal. For iron ore, the company has tied up with the state-owned miner in Ivory Coast.

State-owned Steel Authority of India Ltd has full captive support for iron ore, but has to buy almost all the 13 million tonne coking coal it uses in a year. Corus, which Tata Steel acquired for $13 billion in 2007, has lately proved a drag on the group’s consolidated earnings, as recession in Europe led to slump in demand for steel in the region.

Corus got its biggest jolt when a group of buyers terminated a legally binding, long-term off-take agreement. After failing to dissuade these buyers from their decision, the company said it had no other choice but to start looking for a sustainable solution, which might mean the plant’s sell-off.

“Things are looking up a bit. We are no longer planning to sell the plant. We are actively looking for new offtake partners,” Gerretse said.  With recovery in sight, steel companies are now slowly ramping up production, but Gerretse said this could lead to inventory pile-up and put pressure on prices.

“The problem is that everybody is lighting up blast furnaces at the same. Auto demand is at an all time low and construction is dead in Europe,” he said.